Now that we have converted the sole proprietorship to a s-corporation, the tax planning and strategic planning must be the next topic to address. Since Mr. Jones does not have a spouse, he must consider Mandy as the heir to business and his estate. The Current value of his estate is 53 million dollars. He currently wants his daughter to control 40% of the business and be employed by the business. This memo will discuss the following topics: tax planning, strategic planning, estate planning, transfer of assets and selling the business. Now that s-corporation has been established, successful planning must be a serious consideration for Mr. Jones business. “Under the American Taxpayer Relief Act that was passed in 2013, the s corporation get an exemption from the …show more content…
Jones could do is transfer his interest to his daughter. "Working a firmly held business as a S organization can help with family progression arranging. Besides, the exchange of an enthusiasm for a S partnership can likewise help both domain expense and salary assess arranging. For instance, to lessen the extent of one's domain for home expense purposes, a S organization shareholder may exchange his or her stock to another, normally more youthful, relative. This is a decent home duty arranging strategy since it will lessen the bequest impose, and in addition guarantee that the business remains under your preferred control of somebody. Obviously, the beneficiary must be somebody met all requirements to be a S corporate shareholder so as not to coincidentally end the S corporate status." (Fausett, N. 2008.) To avoid any tax implications to his daughter, Mr. Jones must transfer all the assets to the corporation. Under IRC 311, the s corporation is responsible for the gain of the assets above the fair market value and not Mandy individually. If or when the assets are sold, Bob and Mandy would be responsible for the capital gain on the sale of the
Rul. 70-104, 1970-1 C.B. 66 (1970), is that services from the consulting agreement by the father show a prohibited interest within §302(c)(2)(A)(i). The attribution to him would be terminated due to stock attribution rules of §318, which states that stock owned by family members individually may be reattributed to him through estate, trust, partnership or corporation of which he is a stockholder. Therefore the redemption does not qualify as a termination of his shareholder’s interest within the meaning of §302(b)(3) of the Code.
The continuity of his company would be greater than his current sole proprietorship, by would be governed by his state laws. Without knowing the state he would be creating the LLC in, we can only state that he would be able to include options in the governing documents giving his family a change to buy his share if he does die, which would greatly disrupt the company’s operations. He
If this individual receiving all voting stock and then transfer to his children, he actually “control” the corporation and his children will have ability to “control” the corporation in fact. It will be qualified to recognize no gain or loss during the transaction.
Phyllis and Freddie can redeem the preferred shares at any time; the preferred shareholder still has control over the assets. If they qualify as a qualified Small Business Corporation, one can multiply the number of capital gains exemptions by increasing the number of taxpayers who are shareholders. In addition, Phyllis and Freddie can transfer the asset to the children to who they would like to appoint from their company. The growth in value of which will not be subject to a challenge of their Will under the Wills Variation Act. It can prevent future family disputes and help the estate equalization. When Phyllis and Freddie transfers the preferred shares to their children, it creates the commitment for the children to take over the ownership of the company. Phyllis and Freddie can also maintain control of the
Issue d) Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry-making activities?
Peaceful Pastures Funeral Home Inc. is an accrual basis taxpayer who sells prepaid goods and services to clients that will be provided for them at the time of their death. Goods and services are refundable upon the purchasers request at any time until the contracts are fulfilled. Peaceful Pastures Funeral Home Incorporated is in need of determining the period of recognition for income provide from a prepaid service for which they are an accrual basis taxpayer.
Maria and Jason, along with Robert and Elizabeth, must focus first on the initial setup of the organizational structure and the tax consequences on the corporation and individually before addressing the other factors of the organization, which are simple and easily addressed by discussing individual and group objectives. The first point to address is the IRC Section 351 limitation of 80% control of the corporation. Maria nor Jason are interested in decreases their control of the corporation and the best approach is for Robert and Elizabeth to contribute their proposed transactions and being taxed of on the gains at their marginal tax rate. Otherwise, it is best for Robert and Elizabeth to reevaluate their proposed transactions in order minimize the tax consequences. The IRC Section 351 limitation only pertains to an even exchange of property, weather property or cash, for corporate stock and 80% control of the corporation (IRC Section 351, n.d.).
The immediate issue is to make a decision on the future of the family company.
The issue for decision is whether Walter Hodges is entitled under section §162 to deduct claims on his 2010 Schedule C, Profit or Loss from Business. Upon examination of Mr. Hodges tax return, the IRS disallowed Mr. Hodges Schedule C expenses because he failed to substantiate his expenses or to prove that they were "ordinary and necessary" to his business. Section §162(a) states that all the ordinary and necessary expenses paid or incurred during the taxable year in any trade shall be allowed as deductions. Section §162(a) specifies that such expenses must be directly connected with or pertain to the taxpayer's trade or business that is functioning as a business at the time the expenses were incurred. Furthermore, Walter Hodges largest expenditure was training classes for $25,000 which was an educational expense incurred to prepare for a new career as a real estate investor and renter rather than to maintain or improve skills in an ongoing business or career so it was not a deductible under section §162 (sect. 1.162.-5, Income Tax Reg.).
The Carters meet the gross income test because their income is not taxed and is not included into their gross income. They both also qualify as a qualifying relative. Florence’s support provided by John and Janet is $4,500 for the year. This includes the $3,500 for the lodging and food and the $1,000 paid for her dental work. Calvin’s support is only $3,500 for the year for lodging and food. His life insurance premiums are exempt and cannot be figured as support. Florence and Calvin spent $4,000 of their own money for their support. Florence passes the support test, but Calvin does not. Therefore, Florence qualifies as a dependent exemption because she passed all three tests. Calvin on the other hand only passed two of the three tests and cannot be claimed as a dependent exemption.
Beale, Randolph John, (2000) TC Memo 2000-158, RIA TC Memo ¶2000-158, 79 CCH TCM 2001
The business plan is intended solely for informational purposes to assist you with a due-diligence investigation of this project. The information contained herein is believed to be reliable, but the management team makes no representations or warranties with respect to this information. The financial projects that are part of this plan represent estimates based on extensive research and on assumptions considered reasonable, but they are of course, not guaranteed. The contents of this plan are confidential and are not to be reproduced without express written consent.
Forming a business entity requires a great deal of knowledge before any decision is made. There are advantages and disadvantages to each entity and without proper understanding of what they are, individuals could make costly errors and forfeit crucial perks that would be in the businesses best interest. In the situation in New State, Alex, Bill, Carl, and Devon have inherited their father’s operating organic farm and seek advice, in regards to which form of business organization would best fit their particular criteria. They have emphasized their immediate concerns, wants and needs from a business standpoint, but also stress their strong faith to uphold and operate in accordance with the Christian worldview. Their criteria is as follows, (1) create an entity which averts formalities or complexities, (2) develop a structure allowing cousin Xavier to handle the day-to-day, (3) minimize taxes on the entity, (4) avoid any personal liability, (4) keep business in the family only, (5) remain in accordance with the Christian worldview, (which will be the final topic in this discussion). After reviewing all criteria, it will be advised that forming a limited liability company (LLC) and electing for an S corporation status would be of best interest for the family. Discussed below, is the strengths and weaknesses of each form of business organization as it applies to their unique situation, to help better understand why an LLC/S corporation, is the best form of
If Dr. Green 's gambling activities do not qualify as a trade or business, can he deduct his gambling-related travel and lodging expenses against his gambling winnings?
→ The family control would be weakened and it may hurt family interest if issuing stocks. What's more, if one of the family member sold his/her share, the Winfield Refuse Management, Inc would no longer be a family company.